By Erastus Mwencha
While I have worked in the public & multilateral sectors for over four decades, my heart has always beaten like that one of an entrepreneur. Today, as Chairman of Morgenthau
Stirling, I am delighted to be adding my voice to private sector driven ways of achieving an optimal partnership between the African Union’s fifty-five Member States, & the United States.
At the onset, I would be remiss if I did not refer to the public sector’s tireless efforts to promote both portfolio and direct investment into Africa. While I was Secretary-General of the Common Market for Eastern and Southern Africa, and as Deputy Chairperson of the African Union, our friends in the U.S. States Congress, State Department, Commerce Department, USAID, USTR, and others expended immense resources to support our business facilitation programs. I do not doubt that American effort to support regional integration and intra-African trade programs shall not been forgotten by entrepreneurs on both sides of the Atlantic.
Of course, we do not forget the tireless efforts of the Corporate Council on Africa, the U.S. Chamber of Commerce and the bipartisan group of think-tanks in Washington, DC and elsewhere.
Our work here at Morgenthau Stirling recognizes two key attributes. First, our work is greatly underwritten by the symbiotic pact between public and private sector stakeholders. Second, we are here to augment not to replace or to replicate the work done by public affairs firms. With in mind, the reality is that the Agenda for Africa has a deep bench, and together, we can ensure that relations between Africa and the United States meet the moment.
Advisory . Representation . Advocacy
The United States has endeavored to fuse its destiny with that one of Africa’s most vulnerable people. It has supported democratization across the continent while showing everyone that entrepreneurship and free will are the unique ingredients to landing on the Moon, or capturing the world’s imagination through entertainment, video, or even via tweets. Perhaps, it is even safe suggest that the American way of life is not one of the world’s most admired cultures for nothing. It has taken centuries and hard work to optimally calibrate and balance public and private interest. In this regard, Africa has much to do. Even if nations underwent institutional reforms and saw growth rates more than double from 2 percent in 1980s and 1990’s, to over 5 percent in the twenty years between 2000 and 2019, COVID-19 has changed all that.
“While this should be an exciting time for Africa, the wrinkle of
the COVID-19 pandemic compels us to rethink our engagements.
Fortunately, our partners in the United States are rethinking
engagements with Africa, and we should reciprocate with vigor.”
The Immediate Challenge
Because of COVID, there was an initial sharp -3.2 percent contraction in GDP growth by June 2020; 6.8 percent lower than the IMF’s forecast for 2020, and by October 2020, things still stood at the -3.0 percent level. Worse still, the pandemic affected Africa’s growing sectors and sources of revenue. Remittances that stood at US$ 47 billion in 2019 fell by about 20 percent. The real GDP of tourism-dependent African nations shrunk by -5.1 percent, and well- performing entities like Ethiopian Airlines reported over US$ 1 billion in losses.
With issues in mining, agriculture and oil-production, it matters less that the pandemic did not punish Africa as much as other regions, and more that the -1.9 percent growth in 2020 means
that more Africans shall slide further into poverty. Already, only Botswana, Mauritius, and Seychelles remain stable on the Fragile States Index (FSI). Besides, the projected growth
rate of 3.4 percent is still many percentage points behind the projected 6 percent for the rest of the world. Ultimately, most African nations shall not meet their poverty reduction targets
under the Sustainable Development Goals by 2030.
The Opportunity
Invariably, none of these elements is as punitive yet as resolvable as the fiscal and foreign direct investment challenges. The World Bank and G20 are already engaged in resolving fiscal issues. But private sector firms like ours can do more about foreign direct investment. After all, direct investment is more effective than overseas development assistance at poverty eradication & boosting economic growth.
Therefore, Morgenthau Stirling works on disparate matters; from information asymmetry, to engaging with multi-criteria decision-making criteria to promote Africa as a manufacturing location. We also address a number of elephants in this room: Africa is much larger in physical space than the China, Europe, India, and the United States, combined. From this perspective, it is not fair to insinuate that doing business in Africa is risky. Perspectives could make even the most seasoned investor think about the likelihood that of making losses relative to expected returns on investment. We must work to change that, and appreciate that Deloitte suggested ‘the strategy of fortitude’ as a way to review risk mitigation to match changes and diversity on the continent. Also, with America’s up to 28 million small-to-medium-sized enterprises, and about 19,000 larger ones, a business that advises clients on opportunities in Africa does not have the luxury of resting on its laurels.
We must remind American audiences that in 1993, the Eastern and Southern African Trade & Development Bank raised half a billion dollars in commercial paper alongside Goldman Sachs Money Markets, L.P. and Merrill Lynch Money Market, Inc. More recently, Chubb, a publicly-traded global property and casualty insurer made a US$ 10 million equity investment in the Africa Trade Insurance Agency. Similarly, the U.S. International Development Finance Corporation (DFC) provided a US$ 250 million Tier 2 loan to the Africa Finance Corporation as part of a US$ 500 million capital raise program. Each of these transactions allowed the different institutions (TDB, ATI and AFC) to play their role of intermediating global capital into the region, and in turn, contributing to economic growth on the continent.
U.S. Direct Investment Abroad to Africa, Latin America, Asia/Pacific & UK | 2000 - 2020
Source: U.S. Bureau of Economic Analysis
Over the past 20-year period, the cumulative United States direct
investment abroad to Africa has grown from less than US$ 12 billion,
to over US$ 47.5 billion. This seems like exponential growth, but it is
less than 0.8 percent of the aggregate US$ 6.15 trillion the
United States sent to 221 global destinations.
Illustratively, the return on equity in 2019 for firms like the African Finance Corporation, African Trade Insurance Agency, and the Trade & Development Bank were 11.2 percent, 12.6 percent, and 11.03 percent, respectively. Compare these rates with the United States where dividend
yields of 3 percent are considered high. Interestingly, the story is somewhat similar when investing in Africa’s roads, ports, or rail. Some of Africa’s capital projects are not as risky as similar ones in North America. Now, just think: Africa will be home to the world’s largest number of young people by 2035. What would capital infusions of up to US$ 150 billion per annum mean to those flush with cash, but continue to earn much lower returns?
~ EJOM
\emwencha@morgenthaustirling.com
\info@morgenthaustirling.com
\morgenthaustirling.com
Comments